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Chapter 3: Q 8. (page 78)

Does a price ceiling change the equilibrium price?

Short Answer

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1

Step by step solution

01

Step 1. Define price ceiling.

A price ceiling is the most a producer can charge for a product or service. This is frequently required by the government to ensure that consumers can afford the goods and services in demand.

02

Step 2. Is it true that a price ceiling affects the equilibrium price?

A pricing ceiling is nothing more than a legal limit. The term "equilibrium" refers to the state of affairs in the economy. People may or may not follow the price ceiling, thus the actual price may be at or above it, but the price ceiling has no effect on the equilibrium price.

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Most popular questions from this chapter

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and quantity of flat screen TVs?

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